One writer’s bold attempt to explain Regina’s pension problem
by Bryn Hadubiak
If financial savviness is not your thing, or you’re not some kind of human calculator, the numbers and jargon being thrown around in the city pension plan fiasco can be pretty confusing.
Unions are joining in the fray, the superintendent of pensions is threatening to can the plan — leaving taxpayers on the hook — and every five seconds it feels like new terms are spontaneously birthing themselves into existence to boggle your brain and raise your blood pressure.
Who has the time and energy to make sense of it all?
Turns out, I do, apparently. So, to put the whole thing into context and make navigating the news a bit easier, I’ve put together this handy little guide.
1. What’s Going On? How Did It Come To This?
The problem with the city pension plan is multi-tiered with no single cause.
According to the city, out of the 6,700 employees or so registered with the plan, around 3,000 are retirees. Naturally, being retired, they no longer pay into the plan, and contributions from employees and employers aren’t covering the cost of their benefits.
The current plan, for example, includes a “bridge” benefit: if an employee retires before the age of 65, they get money, based usually on pensionable years of service and a percentage of their average income, to help cover the gap between retirement and their eligibility to receive benefits from the Canada Pension Plan. Overtime pay and a cost of living adjustment (COLA) based on inflation are also used in the current plan’s calculations.
The city says these benefits, along with retirees living longer to draw them and the 2008 market meltdown, played a role in creating the $290 million deficit in 2012.
Although a bylaw obligated the city to increase the contribution rate to offset the growing deficit in 2011, city council chose to break it on the grounds the extra contributions were unsustainable by employees and would cost an extra $4 million to taxpayers.
So, in 2013, the city and the Civic Pension and Benefits Committee (PBC), made up of employees, got together, made a deal and signed a letter of intent (LOI) on changes to make the pension plan work.
In the LOI, the two groups agreed to strip the overtime benefits from the plan, and base the pension’s payout on the average of an employee’s five best years of earnings instead of three. The new plan would make the COLA conditional on the plan’s funding rather than guaranteed, and change it so an employee needed to have a combined age and years of service totalling 85 or more, not 80, in order to retire.
Over a period of 20 years, employers would pay for 60 per cent of the deficit, while employees would pay the remaining 40 per cent.
Most importantly, none of these changes would affect retirees, or benefits earned by employees, before January 2015.
Sounds like all should be well. In the end, though, these proposed changes weren’t enough.
2. But The Problems Keep On Coming
The provincial superintendent of pensions rejected the proposed plan as it stood, feeling its governance structure, contribution rates sustainability and intergenerational equity (new employees being roped into paying for retiree’s benefits), were not yet up to the task of handling the deficit.
As if wrestling with the monstrous debt wasn’t enough of a headache — without a solution by the November deadline, the superintendent may choose to close the pension altogether, leaving the city, employers and taxpayers to pay a sizable chunk of the cost at $165 million. Employees would be forced to switch plans, and retirees might suffer reduced benefits.
And at a time where both sides ought to be working together, talks between the city and the PBC are running about as well as a car engine flooded with water.
Anxious to meet the deadline, the city made changes to the LOI and took their revised plan to the superintendent without consulting the employee groups. Unsurprisingly, some of the employees weren’t too happy about the move or some of the changes proposed.
Protests to honour the original LOI deal sprung up in the form of websites, Facebook posts and pages, and union support. Employee numbers swelled into a mass of hundreds at a meeting on Sept. 9, pouring into the Conexus Arts Centre to question and listen to a panel of PBC members and CUPE representatives. Members of the panel accused the city of trying to replace a sustainable defined benefits plan with a target benefits plan.
3. A New Hope?
So what, exactly, did the city change in their proposal? Turns out, most of the original plan laid out in the LOI was left intact — but with a few important differences.
First, the PBC would be dissolved and city council would no longer hold any sway over how the pension plan ran. Instead, a new, independent body would be created, composed of seven employees and seven employers, an equal balance, with a chief justice, or someone appointed by one, to break any deadlocks.
Next, employers would now pay off 70 per cent of the deficit with higher contribution rates over a 40-year period, with employees only being responsible for 30 per cent, but over a shorter 20-year period.
And finally, to handle future stubborn deficits, a nine-step management framework would be put in place.
If there’s a deficit in the future, for example, the bridge benefit will be first in line for cuts in order to reduce it. If that’s not enough, the second step is a contribution rate increase with a “soft cap” of 0.5 per cent for employers and employees alike.
Following that, if the deficit is still around, the third step is to base pension calculations on an employee’s career earnings, rather than the average of the best five years of an employee’s earnings.
Six more steps, not revealed yet by the city, would follow until the deficit was reduced to nil.
This was the most contentious change made. The major worry of the employee’s groups is the second step in the framework, and whether it changes the pension from a defined benefits plan into a targeted benefits plan.
In the latter, contributions aren’t calculated by how well the plan is funded, but set independently – the benefits desired are “targeted” and the contributions are formulated to try and hit their mark. Unlike a defined benefits plan, though, there aren’t any guarantees any benefit will be paid out.
The city is calling their proposal a “managed defined benefits” plan, but the words “soft cap” suggests the cap is wobbly, and could still see further increase without a guarantee of paying out if the deficit is too large. This is where the plan’s new governance, and the remaining steps in the framework, if accepted, would be important — as it will be the employers and employees deciding where the increases may go.
4. On Ending The Debacle And Living Happily Ever After
Before anything can happen, though, both city council and the superintendent must approve some proposal to fix the deficit, whether it’s this one, one the employee’s group is writing up or some fusion of the two.
The main problem here is still the deadline and the risk of cancelling the plan. Dropping some of the plan’s costs onto taxpayers and reducing benefits for retirees would be a political quagmire that would haunt the city all the way to the next civic election.
It’s preventable, but only if the groups are willing to work things out. The city says it’s willing to talk and come up with a joint proposal with the employees groups to deal with the issues brought up by the superintendent.
It’s up to the PBC to make it happen though.
Council next meets on Sept. 22.